Report, Appendices to report, Governor Barbour's press release
Governor Barbour and Gulfport Mayor George Schloegel announced the recommendations of the PERS Study Commission yesterday at a press conference.* Governor Barbour said:
"Mississippi has a retirement plan that is underfunded by more than $12 billion – a figure that has only worsened over the past decade despite hikes in taxpayer and employee contributions," said Gov. Haley Barbour, who created the commission in August to study Mississippi's state retirement system and recommend reforms to strengthen the plan. "In 2001, PERS had a funded status of 88 percent of assets needed to fund its liabilities; today, that level has dropped to 62 percent, far below the level recognized for such plans. Taxpayers are putting in about 50 percent more than they once were, but the system continues to fall farther behind. We must reverse this trend to protect our retirees and taxpayers future."
The commission made the following recommendations:
*The PERS Board should reconsider lowering its investment return assumption from 8 percent to 7.5 percent as recommended by PERS' own actuary, Cavanaugh MacDonald. Over the last ten years, PERS has achieved a 5.41 percent investment return (p.16). Many states are lowering their investment return assumptions to more accurately reflect market conditions.
*PERS and the Legislature should study adding a defined contribution component. The Governor stressed it was a component, not a replacement of a defined benefit system with a defined contribution system.
*The Legislature should consider revising the make-up of the PERS Board to include more financial subject matter experts and include non-participant taxpayer members. The PERS Board of Trustee only has two members with financial planning expertise, and one of them is about to become Lieutenant Governor although there are some CPA's on the board.
*Change the date of retirement age with several tiers: 62 if fully vested, 55 with at least 30 years of service but no COLA until age 62, or receive a reduced benefit before age 55 if a minimum of 30 years employment is completed. The commission estimates these changes would improve the funding status to only 64%, save $92.8 million, and reduce the employer contribution by 1.62%.
*COLA. The infamous but dearly-beloved COLA. The commission recommended freezing the COLA for three years. Mayor Schoegel said the amount of the COLA payment was $409 million. The amount of the COLA payment is roughly the same amount as the deficit between contributions and benefits payments (See earlier post about deficit). The Commission stated retirees would STILL GET THEIR THIRTEENTH CHECK. The Commission only recommended freezing the amount for three years and then tying it to the inflation rate (consumer price index. Interesting question: Should it be tied to CPI or instead tied to the headline inflation rate?).
The commission estimates this change would improve the funding level to 67% and reduce the employer contribution rate by 2.12%. The consultant estimates PERS pays an extra $10 million per year because the COLA is not linked to the CPI. The commission also pointed out the COLA is 3% a year for the first three years but is compounded after that period. The result is the COLA is determined each year on a retiree's principal that increases each year.
Here is an interview with Senator Hob Bryan. The Senator from East Mississippi says there is nothing to see here, move along. Actually what he said was there was no point in studying PERS for another five years and that the assumptions were just that: assumptions that should not be taken that seriously. I asked him two questions at the end of the clip. Mr. Bryan does not really answer questions so much as pontificate. This is one politician who loooooooves to hear himself talk. The problem is he knows a great deal of facts, the reporters usually don't, and the result is he usually has them eating out of his hand. If you listen to him, you can see how the Democrats in the legislature ruined state finances during Governor Musgrove's term.
*Here are some basic facts about PERS according to its most recent audited financial statements and Executive Director Pat Robertson's comments at a May luncheon videotaped by this website. I include this in every post about PERS so the reader can have a basic foundation to understand PERS. All figures are based on the financial statements for the year ending June 30, 2010. READ THIS BEFORE YOU READ ANYTHING ELSE.
Average years of service is 31
Average age is 59.
47.8% in US equities
25.4% in debt securities
4.6% in real estate
19.5% in non-US equities
Total assets: $21.2 billion on May 1,2011, $17.1 billion in 2010 ($15.5 billion in 2009, $19.7 billion in 2008).
Investment rate of return: 14.1% for 2010.
3-year rolling average: (5.5%)
5-year rolling average: 2.1%
10-year rolling average: 2.3%
20-year rolling average: 7.4%
30-year rolling average: 8.7%
Investment performance since 2000:
Current funding level of actuarial accrued liability: 62.2%. Ms. Robertson said 80% is considered to be the "benchmark of a well-funded plan." Ms. Robertson stated at the May 3 luncheon PERS' accrued liabilities have doubled since 1998 (thanks to the legislature's increase in benefits in 1999 with no additional improvement in "funding mechanisms"). 2010 audited financial statements
Page 8 of the 2010 audit states PERS spent $409 million more in benefits payments than it received in contributions although that does exclude the $2.1 million income from investments. PERS lost $3.7 million in investment income in 2009.
Earlier PERS posts:
Video & Reports from October Investment Committee Meeting
PERS budget hearing
PERS Commission hearing
August PERS Investment Committee video and reports
Resolution to study PERS passes
SLRP fund has over $11 million
What is SLRP?